Near The Money

DEFINITION of 'Near The Money'

An options contract where the strike price is close to the current market price of the corresponding underlying security. An options contract is said to be near the money when the strike price and underlying security's price are close; it is at the money when the strike price is equal to the market price of the underlying security. At or near the money options contract typically cost more (i.e. there will be a higher premium) than out of the money options, where the underlying instrument's price is far away from the strike price. Also called close to the money.

BREAKING DOWN 'Near The Money'

An option with a current market value of $20 and a strike price of $19.80 would be considered near the money, as the difference between the strike price and the market value is only 20 cents. Generally, if that difference is less than 50 cents, the options contract is considered near the money.